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Email this5:17 pm
December 12, 2009
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AltaRed said
All this financially engineered stuff is why I wouldn't put much, if anything, into WS Cash. There are simply too many other competitive alternatives with a direct line of sight.
There are more intermediaries involved, and resolution may be slower, that's true, but for what it's worth, I will note that forum moderator NorthernRaven uses Wealthsimple Cash and has nothing but good things to say about their experience with the firm. I agree with them. 🙂
Cheers,
Doug
5:19 pm
December 12, 2009
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NorthernRaven said
Caution is always good, but so is understanding. More specific details would be in the Wealthsimple agreements, but basically there are two Wealthsimple entities involved, Wealthsimple Investments ("WSII") and Wealthsimple Payments ("WSP"). WSII probably takes your money you provide to the Cash account and places it with WSP, which is depositing it with a bank (or banks) in your name under CDIC trust relationships with WSP as the trustee. It isn't just a big pot of money sitting (or not) at WSP - short of blatant fraud, those funds are very unlikely to be available for them to use for other purposes.Furthermore, neither WSP nor (probably) WSII are doing anything hugely risky like large scale investment banking, draining swamplands or whatnot. I'd guess the main risk of going bankrupt would be some sort of insurmountable debt problems, maybe? In any case, while not a lawyer etc. etc., I'd be pretty sure that those trust accounts belong to you and would eventually be returned, and would not be part of any corporate bankruptcy estate.
The non-registered Cash account has the additional wrinkle of the card, but doesn't change anything as far as I know. The cash is still in CDIC trusts at banks, and WSP merely transfers amounts as necessary to the Card provider, Koho, which doesn't hold the balance.
Whether WSP is using 1 bank or 10, it shouldn't really matter as none of the trust deposits should exceed the $100K limit. The only difference with more banks is a larger risk that a presumably unlikely bankruptcy of one of those Schedule 1 banks means CDIC gets involved in whatever money WSP has in your name at that bank.
Peace of mind is worth whatever one wants, and if someone is uncomfortable or uncertain about WS Cash accounts, there are other alternatives.
^ Well put.
8:36 pm
April 6, 2013
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Doug said
I see you're still spinning this false line, Norman1. 🙁
You don't understand how Wealthsimple operates. Wealthsimple Payments Inc. is just the subsidiary that operates the online platform and contracts Koho Financial Inc. to issue the Wealthsimple Cash Card. Actual customer funds never 'stay' on the Wealthsimple Cash Card; a customer is actually also opening accounts beneficially held though Wealthsimple Investments, Inc. It 'sweeps' funds behind the scenes at end of day from the WSII pooled trust account to cover the transactions made on the Wealthsimple Cash Card. So the only portion ever not CDIC insured, effectively, is the amount of the consumer's transactions to the card that day. 🙂
Not true. Haven't got around to actually reading the Wealthsimple Cash account agreement yet have you?
There is no WSII account unless one tries to do direct deposit or pre-authorized debits with the Wealthsimple Cash account. When one activates the direct deposit/pre-authorized debit feature of the Wealthsimple Cash account, a DD/PAD account is opened with WSII who is also a Payments Canada member.
WSII with its institution code 703 are used to accept the direct deposits and PAD's to be settled against the Wealthsimple Cash account with Wealthsimple Payments.
WSII just holds incoming funds temporarily on their way to Wealthsimple Payments Inc. Eventually, Wealthsimple Payments records the incoming funds in its books for the Wealthsimple Cash account and transfers the funds out of its own bank account to those trust accounts with the Banking Partners.
The Wealthsimple Cash Card is just another way to access the balance of the Wealthsimple Cash account with Wealthsimple Payments.
8:40 pm
April 6, 2013
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Doug said
There are more intermediaries involved, and resolution may be slower, that's true, but for what it's worth, I will note that forum moderator NorthernRaven uses Wealthsimple Cash and has nothing but good things to say about their experience with the firm. I agree with them. 🙂
So what? That former schoolteacher was quite happy too with her Synpase-based savings account in the US. That is until Synapse failed and, months later, was told only $500 of her $282,153.87 could be found among the FDIC member accounts opened by Synapse.
10:33 pm
November 5, 2022
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Norman1 said
So what? That former schoolteacher was quite happy too with her Synpase-based savings account in the US. That is until Synapse failed and, months later, was told only $500 of her $282,153.87 could be found among the FDIC member accounts opened by Synapse.
A new documentary about the Synapse bankruptcy and loss of 100 million.
How Millions of Americans Got Tricked Into Using a Bank That Isn't a Bank
t=1s
7:41 am
August 4, 2010
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doug said
There are more intermediaries involved, and resolution may be slower, that's true, but for what it's worth, I will note that forum moderator NorthernRaven uses Wealthsimple Cash and has nothing but good things to say about their experience with the firm. I agree with them. 🙂
As always, I'll note that moderator simply means "previously helped Peter out with a rash of spam posts", and aside from that I don't exercise editorial functions here, or have any special source of wisdom!
"Nothing but good things to say..." might be a little strong, but in general Wealthsimple is a very good fit for my needs. My assumption on the Chequing is that there are no shaky little intermediaries between the WS empire and the FIs, as there were in the Synapse case, and that WS is generally large enough, not exposed to risks significant enough, and beyond the size where fraud or criminal conduct would have a material likelihood of producing insolvency, to prevent me from sleeping at night.
Having said that, I don't keep large amounts in the Chequing account, for a number of reasons. My direct deposit goes into EQ, both because of the 2.75% rate and because changing it is a big pain. I've also been repatriating stuff to WS, and didn't want big balances there that might have to flow out for GIC purchases or whatever, and mess up net deposits for a promo. The Chequing account is a handy place to receive my promo payments, pay my WS Visa, and so on, but doesn't have a large balance.
10:37 am
April 27, 2017
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We have now moved our primary chequing accounts to WS for both personal and business services. Very happy overall. Lots of advantages, such as speed of transfers, good credit cards, good interface and data reporting which fits our needs. Also, error free (that's just our recent experience vs RBC). The main downside is that some of the ads are a bit irritating. We don’t keep large amounts in chequing accounts either but I would be comfortable with that.
2:01 am
November 18, 2017
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InterestThis: Do you know of any other sources than YouTube (Google) for the Synapse documentary?
RetirEd
10:21 am
April 6, 2013
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NorthernRaven said
… My assumption on the Chequing is that there are no shaky little intermediaries between the WS empire and the FIs, as there were in the Synapse case, and that WS is generally large enough, not exposed to risks significant enough, and beyond the size where fraud or criminal conduct would have a material likelihood of producing insolvency, to prevent me from sleeping at night.
…
But, there is an intermediary and it isn't the giant Wealthsimple empire. It's just their money services business subsidiary Wealthsimple Payments, Inc. It is not a CDIC member, not a regulated bank, and not a regulated trust company.
I asked CDIC about such fintech situations and whether the funds are actually insured. CDIC explained that their deposit insurance only covers deposits against failure of a CDIC member. If a CDIC member didn't fail, then the insurance is not triggered and they don't get involved. Period.
That's just like that case in the US with fintech Synapse. Synapse went under. Synapse was not a FDIC member. So, no FDIC member failed. No FDIC involvement. No FDIC payouts.
Failures aren't always the result of fraud. They aren't sure it was fraud at Synapse or just negligent recordkeeping. One theory is that Synapse spent some of the customer funds on their operating expenses thinking that part of the FDIC-insured deposit account balances was for interest and referral payments that belonged to them and not the customers.
10:52 am
April 27, 2017
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Wealthsimple’s structure is clear. Funds are held in trust with CDIC-member banking partners, and yes, CDIC coverage depends on the trust/beneficiary records being correct.
With Synapse there were multiple layers of unconnected intermediaries. Customers dealt with fintech apps such as Yotta or Juno, which used Synapse, which in turn worked with multiple banks. With WS there is still an intermediary layer which is wholly owned (Wealthsimple Payments), so some operational risk exists, but there is no evidence of the kind of multi-bank, multi-entity, opaque ledgering arrangement that characterized Synapse.
Also, it's a different jurisdiction and laws are different. Under the Canadian CDIC trust framework, the CDIC member institution (the bank) must have sufficient records to identify:
1. That the account is a trust account (e.g., held by Wealthsimple Payments in trust for clients); and
2. Who the beneficiaries are and how much each beneficiary owns.
So, for example, if Wealthsimple holds a pooled trust account at a bank, the bank must either:
- maintain records itself showing that John X owns $50,000; or
- have records identifying the trustee (Wealthsimple) and be able to obtain the detailed beneficiary records from the trustee in a manner that satisfies CDIC requirements.
- WS itself audits records, banks are expected to audit important third party arrangements as do independent auditors, OSFI’s requires banks to comply with Third-Party Risk Management Guideline, CDIC can review member institutions’ deposit records and assess whether they can accurately determine deposit insurance coverage, including for trust deposits.
If WS goes bankrupt (but not the rest of Canada), I would totally expect a delay but I also expect the records of ownership to be clear and funds distributed.
10:57 am
August 4, 2010
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Norman1 said
NorthernRaven said
… My assumption on the Chequing is that there are no shaky little intermediaries between the WS empire and the FIs, as there were in the Synapse case, and that WS is generally large enough, not exposed to risks significant enough, and beyond the size where fraud or criminal conduct would have a material likelihood of producing insolvency, to prevent me from sleeping at night.
…But, there is an intermediary and it isn't the giant Wealthsimple empire. It's just their money services business subsidiary Wealthsimple Payments, Inc. It is not a CDIC member, not a regulated bank, and not a regulated trust company.
I asked CDIC about such fintech situations and whether the funds are actually insured. CDIC explained that their deposit insurance only covers deposits against failure of a CDIC member. If a CDIC member didn't fail, then the insurance is not triggered and they don't get involved. Period.
That's just like that case in the US with fintech Synapse. Synapse went under. Synapse was not a FDIC member. So, no FDIC member failed. No FDIC involvement. No FDIC payouts.
Failures aren't always the result of fraud. They aren't sure it was fraud at Synapse or just negligent recordkeeping. One theory is that Synapse spent some of the customer funds on their operating expenses thinking that part of the FDIC-insured deposit account balances was for interest and referral payments that belonged to them.
Yes, of course, CDIC is definitely only involved with bank failures, a much more unlikely source of concern. Another of my implicit assumptions is that although a distinct subsidiary, being part of the WS empire means it has resources backing it to figure out and wind down any bookkeeping issues, unprofitability, fraud and so on, and is a qualitatively different situation from a relatively small private US fintech 3rd party BaaS intermediary scrambling around for a viable business.
I have trouble imagining the level of disaster that would prompt Power Corp to effectively say "gee, this part of 'Wealthsimple' was allowed to be run into insolvency and client losses due to incompetence or fraud and we are cutting it adrift, but the other parts of 'Wealthsimple' are perfectly fine and safe and you shouldn't shun or flee, and don't even consider the possibility of the same sort of mess at other companies we control, like your stuff at Canada Life, IMG, and so on"... 🙂
Obviously I might consider things a bit more closely if I were going to park large amounts in my Chequing account, but for the $1-5K that generally sits in there for transactional purposes I'm willing to live with my assumptions. There's better alternatives to store cash that doesn't need immediate access. Everyone's own mileage may vary on this. There's a continuum of things like CDIC bank > Wealthsimple > Koho > MapleMadoff Inc., and Wealthsimple falls on the good side of the line, for me.
Perhaps Wealthsimple will offer a predictions proposition on whether WSP will ever go bankrupt... 🙂
2:33 pm
November 5, 2022
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Fintech's like Neo Financial seem to be the same structure as the US ones. But they claim your deposit is under your name in another CDIC bank, but is there proof this is true?
Which banks?
Can you see which banks are holding your money with your name on it?
These US fintechs said the same thing, until they went bankrupt. They just pooled all the money together in one account.
Has any Canadian fintech gone bankrupt and then has the CDIC given depositors back their money? Until it happens, its just words on a website.
------------------------
https://www.neofinancial.com/a.....s/chequing
Quote:
The funds added to Neo Chequing accounts are ultimately held securely in trust in the name of the primary account holder with one or more member institutions of the Canada Deposit Insurance Corporation (“CDIC”). Neo is not a CDIC member institution; however, eligible funds held in trust are insured by CDIC for up to $100,000 of the total balance of funds held in trust per beneficiary, per member institution in the event of a member institution’s failure, provided certain disclosure rules are met.For more information about CDIC deposit insurance, please consult CDIC’s website cdic.ca.
9:04 pm
April 6, 2013
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InterestThis said
Fintech's like Neo Financial seem to be the same structure as the US ones. But they claim your deposit is under your name in another CDIC bank, but is there proof this is true?
…
It's false for Neo's later products.
Their earlier Neo High-Interest Savings Account is a rebranded separate Peoples Bank account. Neo just provided the online access to the account. Peoples Bank is a CDIC member. So, there was CDIC coverage with the rebranded Peoples Bank account.
Their Neo Chequing account is an account with Neo Financial Technologies Inc., not a CDIC member.
There's actually no such thing as a trust account in the beneficiaries name. Trust accounts are always in the trustee's name. There is an optional declaration of beneficiaries to potentially multiply deposit insurance coverage when there are multiple beneficiaries.
2:25 am
November 5, 2022
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Neo says,
"The funds added to Neo Chequing accounts are ultimately held securely in trust in the name of the primary account holder"
This is so vague, who is the primary account holder? Neo Financial? Is it all pooled together?
Why use the word "ultimately".
It makes very little sense, and maybe there is more legal disclosure somewhere.
Neo was founded by SkipTheDishes people, it seems very questionable.
Perhaps no one knows what might happen, until one of these Canadian fintechs goes bankrupt.
9:22 am
April 6, 2013
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InterestThis said
Neo says,
"The funds added to Neo Chequing accounts are ultimately held securely in trust in the name of the primary account holder"This is so vague, who is the primary account holder? Neo Financial? Is it all pooled together?
Why use the word "ultimately".
…
Primary account holder is intended to be the primary account holder of the Neo Chequing account.
That's just sloppy writing. Trust accounts don't work that way. Trust accounts are in the name of the trustee. If the account were in the name of the beneficiary, then the account is just a regular account and not a trust account.
The details are in the chequing account's legal agreement. The agreement details the journey of what was your money from you to Neo Financial Technologies Inc., to a Settlement Account Provider, to a Trustee, and ultimately to a trust account with a CDIC member.
The balances in the CDIC insured trust accounts are what backs up the balance in your Neo Chequing account that Neo Financial Technologies Inc. owes you.
9:35 am
November 5, 2022
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Seems simple and straightforward what they are doing with your money...NOT.
https://static.production.neof.....eement.pdf
7. Trust Arrangement; Appointment of Trustee
Neo has established one or more Client Trusts for purposes of holding and safeguarding end-user funds in trust, including Client Trust Funds. By using the Neo Chequing Account, you intend for your Client Trust Funds to be held in a Client Trust in trust for your benefit and Neo agrees to hold your Client Trust Funds in a Client Trust, in trust, in accordance with this Chequing Agreement and the applicable Declaration of Trust.
You authorize Neo to: (a) designate the Client Trust in which your Client Trust Funds will be held in trust,
and (b) appoint a Trustee of each such Client Trust to safeguard and hold your Client Trust Funds in trust.
Neo has the right to replace the Trustee with one or more successor Trustees or appoint one or more additional Trustees or sub-Trustees at any time, in each case, in its sole discretion, and, except where prohibited by applicable law, without prior notice to or consent from you. The name of any Trustee(s) appointed by Neo pursuant to this Section 7 (Trust Arrangement; Appointment of Trustee) will be disclosed on the Neo Website and or the Neo App.
The applicable Trustee will deposit and hold your Client Trust Funds in a Trust Account separate and apart from the Trustee’s own property and Neo’s property. The Trustee may hold your Client Trust Funds in multiple Trust Accounts and may transfer your Client Trust Funds between Trust Accounts. The Trustee will record the Client Trust Funds beneficially owned by you in the ledger maintained by the Trustee for this purpose separate and apart from the Trustee’s own property, Neo’s property and any other Client’s
Client Trust Funds. Neither Neo nor the Trustee may use your Client Trust Funds in the conduct of its business. Neither Neo nor the Trustee may loan, hypothecate, pledge, or otherwise encumber your Client Trust Funds.
You authorize Neo and the Trustee to: (a) transfer your Client Trust Funds to, from and between Trust Accounts, and to and from Settlement Accounts in its discretion without notice to you; and (b) in connection with such transfers to submit instructions and disclose your personal information (including Electronic Transaction information) to: (i) the Deposit-Taking Institutions; (ii) the Third Party Service Providers; and (iii) Neo and/or the Trustee(s), as applicable.
10:14 am
April 6, 2013
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InterestThis said
Seems simple and straightforward what they are doing with your money...NOT.https://static.production.neof.....eement.pdf
7. Trust Arrangement; Appointment of Trustee
Neo has established one or more Client Trusts for purposes of holding and safeguarding end-user funds in trust, including Client Trust Funds. By using the Neo Chequing Account, you intend for your Client Trust Funds to be held in a Client Trust in trust for your benefit…
Yes, Neo Financial Technology does give lots of detail about the journey the money "ultimately" takes. It even explains that the money is not held in trust through the entire journey, from the moment the money is credited to the chequing account:
Until the funds you load into your Neo Chequing Account are received by Neo and have cleared and settled, your funds are In-Transit. In-Transit funds are not Client Trust Funds and are not held in trust by a Trustee. You will not be able to transact with your funds while they are In-Transit.
Don't get misdirected by all that detail. The money is no longer yours once the money is given to Neo in return for a credit to the balance of the chequing account.
When one uses the app or web site to look at the balance of the chequing account, one is looking at the balance of the account one has with Neo Financial Technology. Neo Financial Technology is liabie for that balance to the account holder, not the Settlement Account Provider, not the Trustee, and not the CDIC members the trust accounts are with.
One is not looking the CDIC insured balance of a trust account that the Trustee that has declared one to be a beneficiary of.
1:08 pm
April 27, 2017
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“One is not looking at the CDIC insured balance of a trust account…”
Not true. The reason it is advertised as CDIC-protected is precisely because the corresponding funds are held in trust at a CDIC member institution. The trust arrangement is very much legally significant. To suggest that it's irrelevant = bad claim.
7:30 pm
April 6, 2013
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mordko said
“One is not looking at the CDIC insured balance of a trust account…”Not true. The reason it is advertised as CDIC-protected is precisely because the corresponding funds are held in trust at a CDIC member institution. The trust arrangement is very much legally significant. To suggest that it's irrelevant = bad claim.
Yes, its true. The advertising is also irrelevant.
What are you going to do? Sue the bankrupt fintech for breach of trust and misleading advertising when the bankruptcy trustee finds that the funds in the trust accounts don't add up to the balances of the fintech's savings and chequing accounts.
Still think your broker's site and statements show shares out there registered in your name instead of just what shares the broker owes you?
8:38 am
April 27, 2017
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What am I going to do? Wait.
If the funds are properly held in trust, I’ll receive my share of the trust property, and if the CDIC trust requirements are met, eligible deposits are protected.
If there is a fraud that creates a shortfall in the trust assets, then CDIC may not make me whole for that shortfall - the issue becomes recovering assets through the insolvency or fraud process. CDIC is not insurance against embezzlement.
However, the trust arrangement is very much legally significant in Canada. If Wealthsimple were to become insolvent, the trust funds would not form part of Wealthsimple’s bankruptcy estate and will be returned to customers.
